Stocks drop Monday ahead of choppy week; Inflation, spending and consumer confidence updates on deck

The shares fell Monday afternoon after opening higher. Cryptos were down 2% overall as Bitcoin continues to float around the $20,000 mark.

The second quarter is drawing to a close and earnings season is looming. That created a choppy trading environment on Monday, which could continue throughout the week as fund managers rebalance portfolios for the quarter ahead.

Despite a likely choppy week without a clear headline for the market to ponder for several days — like with Fed meetings — there will still be key economic reports worth watching. The most important reports will be released on Thursday via the Personal Consumption Expenditure (PCE) Price Index and the Personal Income and Expenditure report.

Other key reports are Tuesday morning’s consumer confidence report and Friday’s ISM manufacturing index update.

Inflation and spending

The PCE price index is expected to have risen in May at a monthly rate of 0.7%, with the core reading expected 0.4% higher. This follows slight increases of 0.2% and 0.3%, respectively.

Half a point above the monthly pace of the headline figure, which includes volatile prices such as food and energy, should come as no surprise. During the month of May, the barrel of West Texas Intermediate rose by 9.3% – so expect a jump.

Reactions to this report will come down to, was it better or worse than feared? Also, how big were the price increases?

The May CPI report, which triggered this most recent selloff, showed worrying signs as broad price increases spread to products like used cars and new vehicles, which – at the time – were to soften. Add to that the price increases for housing, food and energy, and the story of peak inflation has all but disintegrated.

On the revenue and expense side, what we monitor is resilience. Both income and expenses are expected to increase at a monthly rate of 0.5%.

Personal spending has held steady against inflation, but, in the zero-sum game we’re playing, this comes at an unsustainable cost as the personal savings rate continues to erode – currently at 4.4% after ended December at 8.7%.

The BEA report’s spending and revenue will be more interesting this time around after comments last week from St. Louis Fed President James Bullard. Bullard justified his view that it’s too early to talk about a potentially imminent recession, as resilient spending is being fueled by $3.5 trillion in unspent Covid aid, which he says will boost spending and lending. ‘economy.

consumer confidence

Unspent Covid aid is fine, but consumers need to have some confidence to be willing to part with it.

An MIT study showed that most Americans didn’t spend the first economic impact payment — except those who had no choice but to spend it.

Consumer confidence is expected to have continued to decline in June, with estimates set for a decline to a reading of 101.0 – from May’s reading of 106.4.

It will be interesting to see what comes from here. A recent report by the LendingClub Corporation (LC) showed that one-third of people earning more than $250,000 a year live paycheck to paycheck. The lower and middle class ranges currently sit at 79.9% for those earning less than $50,000 and 63.8% for those earning between $50,000 and $100,000.

For unspent Covid aid to keep spending afloat, people must continue to feel secure enough to participate in discretionary spending. The interesting question is when does spending slow down/stop for people who still have room to spend?

The more conservative and/or financially frugal people – who likely have a lower bar to quit spending activities – are likely to make up the bulk of those who still have some of those Covid funds.

That doesn’t mean Bullard is wrong to point to unspent Covid aid as an anchor for the economy, but it does underscore the need to prevent things from getting much worse than they are right now. , because we don’t know where the breakpoint is. for these people.

The rest

In short, the ISM manufacturing index is expected to rise at a slower pace with a reading of 55.0% in June. The price index fell for its third straight month in the latest report, as survey respondents remained optimistic about demand.

Meanwhile, profits will resume this week, but the real flood won’t start for a few more weeks.

Nike (NKE) and Trip.com (TCOM) will kick things off after the market closes today. Keep an eye out for comments regarding changing consumer spending habits, trip cancellations and supply chain updates. Travel was expected to have a robust summer, while Nike and other retailers could benefit from the lipstick effect.

General Mills (GIS) and Constellation Brands (STZ) will be significant updates as the respective adult food and beverage companies may have further price increases in store.

Economic events this week

Tuesday

– 9:00 a.m. ET – S&P Case-Shiller Home Price Index

– 10:00 a.m. ET – Consumer Confidence

Wednesday

– 8:30 a.m. ET – GDP – Third estimate

– 8:30 a.m. ET – GDP Deflator – Third Estimate

– 10:30 a.m. ET – EIA Crude Oil Inventories

Thursday

– 8:30 a.m. ET – Initial claims

– 8:30 a.m. ET – PCE Rates

– 8:30 a.m. ET – Personal Income

– 8:30 a.m. ET – Personal expenses

Friday

– 9:45 a.m. ET – IHS Markit Manufacturing PMI – Final

– 10:00 a.m. ET – Construction expenses

– 10:00 a.m. ET – ISM Manufacturing Index

Revenue reports this week

Monday:

After the bell:

NKE, TCOM, CNXC, JEF

Tuesday:

Before the bell:

SNX, EPAC, CGNT

After the bell:

PRGS, AVAV

Wednesday:

Before the bell:

SIG, MKC, PDCO, BBBY, SJR, PAYX, MSM, SCHN, UNF

After the bell:

MLKN, SGH, FIZZ, DCT

Thursday:

Before the bell:

WBA, STZ, AYI, SMPL, LNN

After the bell:

MU, ACCD

Garland K. Long